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The LEI - What is it and who needs it?

Shivani , Last updated: 14 June 2024  
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The Legal Entity Identifier, or LEI for short, is playing an increasingly important role in the global financial system. It is a unique identification code that helps to make financial transactions more transparent and secure.

But what exactly is the LEI, why is it needed and who needs it? The following article explains the basics of the LEI and how companies can obtain this code.

The LEI - What is it and who needs it

What is behind the Legal Entity Identifier?

The Legal Entity Identifier, abbreviated as LEI, is a 20-digit alphanumeric code. It enables the unique identification of legal entities involved in financial transactions worldwide.

The LEI code is based on the ISO 17442 standard. This ensures that each code is unique and complies with international standards. The introduction of the LEI system has significantly increased transparency in the international financial market and strengthened confidence in the integrity of the financial markets.

Applying for the LEI code is quite complex, especially for companies that are faced with this process for the first time. However, there are professional agencies that support companies in applying for the LEI. These agencies handle the entire application process, including submission to the Global Legal Entity Identifier Foundation, or GLEIF for short. The GLEIF is the organization that manages the global LEI system and ensures that all registries adhere to the same high standards. Such an agency can be found, for example, at www.lei.net.

 

These service providers offer valuable support and ensure that the application is submitted correctly and completely. This saves time and reduces the risk of delays or even rejection in the application process.

Why is the LEI needed?

The LEI is required in a variety of financial transactions, including, for example, trading in securities, derivatives and other financial instruments. It is used to uniquely identify legal entities, making it easier to monitor and regulate financial markets. This is particularly important to prevent market abuse and improve risk management procedures.

A key aspect of the LEI system is to increase transparency. By uniquely identifying market participants, regulators can better understand who is involved in which transactions. This has become a crucial factor in maintaining the stability and integrity of the global financial system.

 

Who needs an LEI code?

In many countries, having an LEI is a legal requirement for companies involved in certain financial transactions, for example in India.

These companies include banks, insurance companies, investment companies and other financial institutions. However, companies outside the financial sector that are involved in financial transactions, such as large multinational corporations or medium-sized companies that conduct international business, also generally require the LEI.

European regulators, for example, require all legal entities that trade derivatives to have an LEI. Similar requirements exist in the US and other countries around the world. But even if there is no legal requirement, having an LEI can be an advantage - after all, it makes it easier to participate in the global financial markets.

The Legal Entity Identifier is therefore an almost indispensable tool in modern finance. It increases the transparency, security and efficiency of financial transactions worldwide. Companies that are active on international financial markets should therefore apply for an LEI at an early stage in order to take full advantage of this system.

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Published by

Shivani
(Finance Professional)
Category Miscellaneous   Report

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